Credit Card Payment Research Articles

Credit Card Debt and Payment Use

Approximately half of credit card holders in the United States regularly carry unpaid credit card debt. These so‐called “revolvers” exhibit payment behavior that differs from that of those who repay their entire credit card balance every month. Previous literature has focused on the adoption of debit cards by people who carry credit card balances, but so far there has been no empirical analysis exploring the relationship between revolving behavior and patterns of payment use, such as substitution away from credit cards to other payment methods. Using data collected in the 2005 Survey of Consumer Payment Preferences, we explore the relationship between revolving credit card balances and payment use. We find that credit card revolvers are significantly more likely to use debit and less likely to use credit than convenience users who repay their balances each month. There is no significant difference between these two types of credit card users in their use of check or cash. The two groups differ in their perceptions of payments as well as in their payment behavior: revolvers are significantly less likely to view debit as superior with respect to ease of use and acceptability, but more likely to see debit as superior with respect to control over money and budgeting.

Functional data analysis for cash flow and transactions intensity continuous-time prediction using Hilbert-valued autoregressive processes

In this paper we use a functional autoregressive model as a robust predictor of the cash flow and intensity of transactions in a credit card payment systems. Intraday economic time series are treated as random continuous functions projected onto low dimensional subspace. Wavelet bases are considered for data smoothing. We compare two linear wavelet methods for the prediction problem of a continuous-time stochastic process on an entire time interval. Ex poste prediction is used to check the models.

Banking on China's WTO Commitments: 'Same Bed, Different Dreams' in China's Financial Services Sector

Foreign banks and the Chinese Government have different dreams about the business opportunities and obligations that arise under China's World Trade Organization (WTO) commitments on financial services. This article provides an overview of China's banking sector reforms and its gradual opening to foreign participation in the context of General Agreement on Trade in Services (GATS) rules governing international trade in financial services and the obligations that apply since China's WTO accession in December 2001. The article highlights the contradictory interpretations that China and other Members have issued regarding China's GATS commitments and provides a framework for assessing the WTO consistency of China's banking measures. An analysis is conducted under this framework to evaluate whether China has fully implemented its GATS commitments on (i) the acquisition of Chinese banks by foreign financial institutions, (ii) legitimate ‘prudential regulation’ in the banking sector, and (iii) full market access for credit card and electronic payment services. Notwithstanding the apparent complexity of GATS rules, the article concludes that the WTO legal framework supports the case for increased access to China's financial services market consistent with its GATS commitments, and fully consistent with China's plans for continuing domestic growth and its medium-term financial services export interests.

Belief in a Just World: A Case Study in Public Health Ethics

A recent news article in The Atlanta Journal-Constitution profiled a working-class married couple, Connie and Michael Post, whose children were enrolled in PeachCare for Kids, a health insurance program for children that is Georgia's version of the State Children's Health Insurance Program. (1) The Posts were having a tough time making ends meet, and they depended on PeachCare for health care for their three children (and a fourth on the way at the time the series appeared). Michael had recently left his $42,000-a-year job a full-time pastor to work a freelance minister, supplementing his income with odd jobs and house painting. Connie had taken a job at a local horseshoeing school for $25,000 a year. Their take-home pay was about $850 per week, and their monthly expenses (mortgage, car payment, auto insurance, health insurance premiums with high deductibles for the parents, food, gas, electricity, water, cell and telephone service, clothes, credit card payment, life insurance) averaged around $2,883 a month, leaving little left over for extras. Living paycheck to paycheck, they seemed nonetheless a happy and stable family. PeachCare for Kids lets families earning less than 235 percent of the federal poverty level get free health insurance for their children up to age six, and to pay a modest premium for health insurance for children over that age. The benefits include doctor visits, immunizations, hospitalizations, and emergency room visits. PeachCare is widely regarded a successful preventive health program for children in low-income families whose earnings put them above Medicaid eligibility levels. The Posts would likely have been completely insolvent had not PeachCare been paying their children's medical bills. Their middle child, Cadence, was disabled with autism, and she needed two $135 therapy sessions every week on an ongoing basis. An older child had sensory problems but had improved with once-a-week, $135 therapy sessions and no longer needed them. You can imagine how grateful we are for PeachCare, Connie told the paper. Angry Readers Readers' reactions to the story were almost uniformly negative--which was particularly striking because the newspaper has a reputation for balance and evenhandedness in printing reader responses. (2) Readers consistently complained that the Posts were irresponsible. Some criticized the parents for their employment choices. [They] have deliberately chosen to limit their income by giving up a high paying job--yet they continue to have children and shift the responsibility for their medical care to the taxpayers, wrote one reader. Another thought that Connie, with a degree in English, should have become a public school teacher with medical benefits. A third observed: While reading this story, my blood pressure spiked.... Whenever you reward bad behavior, that behavior will continue. This is why we need to cut these programs for all but the truly needy. These people aren't needy, they are lazy, and PeachCare simply encourages said laziness. Almost all readers criticized the Posts for having too many children, and especially for being pregnant with a fourth child. Unfortunately, it appears that the Posts do not themselves believe in being responsible, wrote one reader. [P]erhaps without multiple children they could not afford to provide for, they would be doing just fine. Another commented, as the story progressed my feelings turned to and then anger when I learned that 'another child is on the way.' ... The responsible thing for this couple to do would be to practice some sort of birth control. Michael Post offered a defense of his family in a column a few days later. (3) He wrote that he and Connie had also felt disbelief at news of the latest pregnancy, since we had employed the same birth control method that had produced unfailing success the previous 2 1/2 years. Once the shock wore off though, we embraced the reality that we would once again be given the opportunity to provide a loving home for another person. …

Monopoly money: The effect of payment coupling and form on spending behavior.

This article examines consumer spending as a function of payment mode both when the modes differ in terms of payment coupling (association between purchase decision and actual parting of money) and physical form as well as when the modes differ only in terms of form. Study 1 demonstrates that consumers are willing to spend more when a credit card logo is present versus absent. Study 2 shows that the credit card effect can be attenuated when people estimate their expenses using a decomposition strategy (vs. a holistic one). Noting that credit card and cash payments differ in terms of payment coupling and form, Studies 3 and 4 examine consumer spending when the payment mode differs only in physical form. Study 3 demonstrates that consumers spend more when they are spending scrip (a form of stored value certificate) versus cash of the same face value. Study 4 shows that the difference in spending across payment modes (cash and gift certificates) is attenuated by altering the salience of parting with money through contextual manipulations of the differences between cash and gift certificates.

Automatic on-line risk analysis of suspicious transactions

Portion of the electronically processed agendas and transactions of all kinds constantly increases and also the volume and importance of the processed agendas grows. Therefore, the need for supervision and inspection of these transactions is also increasing. One possibility is to accomplish control e.g. with the use of specialised mining instruments. The main disadvantage of this approach is the fact that the discovered suspicious transaction was completed long ago and it is impossible to change it. In such a case, we need to inspect and evaluate transactions in the real time still before their completion. But the complexity of real-time analysis of transaction rapidly grows with the increasing set of aspects of this assessment. This paper describes the conception, architecture and possibilities to utilize a system which contains mainly the on-line risk analysis and simultaneously it enables an automatic adaptation by the means of utilizing conclusions from a feedback analysis of mining instruments of the data warehouse. This system is suitable e.g. for the automatic on-line analysis of risks of credit card payments, authenticity of the submitted projects (at university), the submitted tax or customs declarations, etc. Without any detriment to generality, we shall use the last mentioned application domain for explaining the system properties.

The Reaction of Consumer Spending and Debt to Tax Rebates—Evidence from Consumer Credit Data

We use a new panel data set of credit card accounts to analyze how consumers responded to the 2001 federal income tax rebates. We estimate the monthly response of credit card payments, spending, and debt, exploiting the unique, randomized timing of the rebate disbursement. We find that, on average, consumers initially saved some of the rebate, by increasing their credit card payments and thereby paying down debt. But soon afterward their spending increased, counter to the permanent income model. Spending rose most for consumers who were initially most likely to be liquidity constrained, whereas debt declined most (so saving rose most) for unconstrained consumers.

The Costs of Paying - Private and Social Costs of Cash and Card Payments

Despite the central role of payments in theoretical and policy oriented economics, there is surprisingly little known about the costs of different payment instruments. We estimate social and private costs of cash, debit and credit card payments in Sweden in 2002. The combined social cost of providing these payment services is approximately 0.4 per cent of GDP. Debit and credit cards are socially less costly than cash for payments above EURO 8 and EURO 18, respectively. Corresponding thresholds for consumers' private costs are somewhat higher. Data indicate a too extensive use of cash relative to card payments in terms of both private and social costs.

Using e-cheques to reduce credit interchange fees: Case study of Carnegie Mellon University

Facing increasing interchange fees when collecting student payments via credit card, Pittsburgh-based Carnegie-Mellon University sought a solution that would help them avoid rising costs, streamline and integrate with their current process and still satisfy their important constituents. Working with its trusted cash management provider, The Bank of New York Mellon, the University's decision makers concluded that it could meet most, if not all of its goals, for process improvement and expense reduction by introducing e-check — or Web-based ACH transactions — to its portfolio of payment options. Using The Bank of New York Mellon's Masterfile Payment System, Carnegie Mellon University introduced the new e-check option just over two years ago. Since then, the University has been able to eliminate credit card payments altogether, thus avoiding significant interchange fees and transition its payers to other more cost effective payment methods including ACH, Wire and Lockbox remittances. This article explores how Carnegie Mellon University succeeded in migrating many of its payers to e-checks, including a look at how they designed the system, communicated the change to payers, how the introduction of e-checks affected the use of various other payment alternatives, and what they would do differently if given the opportunity

A Smart Card Based Internet Micropayment Infrastructure: Technical Development and User Adoption

As online shopping services proliferate, the need for a secure and convenient payment infrastructure becomes critical. While credit card payment has become common for online purchases, a payment solution has not yet been developed that can be used to support transactions involving a monetary value in the range of a few dollars or even cents. In this study, the authors report their experience in developing a smart card based micropayment infrastructure in collaboration with a major bank. The infrastructure makes use of Mondex, a cash card standard adopted by major financial institutions worldwide. The infrastructure provides a platform to support online transfer of Mondex value over the Internet. Unlike other cash card products, Mondex is the only standard that can support card-to-card transfer without a mediating party. The transactions are immediate and anonymous. This article outlines the technical approach used in the development of the infrastructure and presents a behavioral adoption model to identify and assess factors that may affect its adoption. The findings indicate that the use of the adoption model in the early stages of product development can provide valuable insights to a development team. Theoretical contributions and practical implications specific to the Mondex Internet micropayment infrastructure are also discussed.

The Reaction of Consumer Spending and Debt to Tax Rebates - Evidence from Consumer Credit Data

We use a new panel dataset of credit card accounts to analyze how consumers responded to the 2001 Federal income tax rebates. We estimate the monthly response of credit card payments, spending, and debt, exploiting the unique, randomized timing of the rebate disbursement. We find that, on average, consumers initially saved some of the rebate, by increasing their credit card payments and thereby paying down debt. But soon afterwards their spending increased, counter to the canonical Permanent-Income model. Spending rose most for consumers who were initially most likely to be liquidity constrained, whereas debt declined most (so saving rose most) for unconstrained consumers. More generally, the results suggest that there can be important dynamics in consumers' response to lumpy increases in income like tax rebates, working in part through balance sheet (liquidity) mechanisms.

Determinants of Merchant Participation in Credit Card Payment Schemes

This paper aims to empirically establish the determinants of merchant participation in credit card payment schemes. It is found that a merchant's personal background, type of business and total value of sales are significant in determining a merchant's acceptance of cards in payment transactions. Further, it is found that customers' usage of credit cards and other merchants’ acceptance of credit cards in payments have a significant influence on a merchant's decision. Findings also indicate that non-pecuniary strategic factors are stronger drivers and barriers to a merchant's participation in credit cards payments services compared to monetary related factors.

Single euro payments area from the retail banking perspective

Europe-wide cashless payments are soon set to become reality with the ‘single euro payments area’ (SEPA). In line with plans by the European Commission and the European Central Bank, from January 2008 bank customers in all EU countries will be able to make cross-border credit transfers, direct debit and card payments as easily and securely as they already do in their home countries. This paper will also outline the viewpoint on SEPA of the Sparkassen-Finanzgruppe (group of German savings banks, Landesbanken and associated companies), who believe this transformation of cashless payment transactions must be customer-oriented — in other words private customer-oriented too — and improve rather than worsen the competitive landscape in Europe. As far as existing debit methods in Europe are concerned, the German banking industry views a network of competitive European systems working in collaboration with global methods as a viable solution for meeting the requirements of the SEPA Cards Framework (SCF).

A Practical Electronic Payment System for Message Delivery Service in the Mobile Environment

Instead of the traditional credit card payment system, we propose a new electronic payment system for use in a mobile environment. The idea behind this payment service is that a user (customer) applies a message delivery service to obtain a varied authentication token from a servicing bank through his cell phone. The token is used to ensure the validity of the transaction and the legality of the user. On the other hand, because only the user knows the authentication token, he/her cannot later deny that he/her made the transaction. Therefore, in addition to authentication, the property of non-repudiation can also be achieved by using our proposed scheme. Most importantly, our scheme does not require any credit card or tamper-resistant device (i.e. smart card) to store critical information. Consequently, the electronic payment system enhances the security of the traditional credit card payment system. The proposed scheme eliminates the risks of losing a card and duplicating the content of a user's card by a dishonest merchant.

Competing E-Purse Systems

Electronic purse systems can be an alternative for cash payments as well as PIN payments or credit card payments. For retailers as well as banks, this is attractive for reasons of cost and speed. One common system seems feasible, but in The Netherlands there have been two competing systems for several years. The common banks started with one system, but one of these banks introduced a competing system. This resulted in a costly battle. In the end, the banks decided to return to one system. This case can be seen as a battle between two standards, and standardization theory can be used to analyze it. The challenge for each stakeholder is to make a decision without knowing what the other stakeholders will do. In this case, we take the perspective of the bank that initiated the competing e-purse system.

Securing credit card transactions with one-time payment scheme

Traditional credit card payment is not secure against credit card frauds because an attacker can easily know a semi-secret credit card number that is repetitively used. Recently one-time transaction number has been proposed by some researchers and credit card companies to enhance the security in credit card payment. Following this idea, we present a practical security enhancement scheme for one-time credit card payment. In our scheme, a hash function is used in generation of one-time credit card numbers with a secret only known to the card holder and issuer. Compared with related work, our scheme places less burden on credit card issuers, and can be easily deployed in on-line or off-line payment scenarios. Analysis and simulation show that the time and space complexity is affordable to the card issuer with desired security features.

Increasing Deadline-Constrained Throughput in Multi-Channel ALOHA Networks via Non-Stationary Multiple-Power-Level Transmission Policies.

Multi-channel Slotted ALOHA is currently used primarily in satellite-based networks for transaction processing (e.g., credit card payments at cash registers). For these applications, maximization of attainable throughput while adhering to a maximum-delay constraint with a required probability reflects both the user's requirements, the network owner's desires, and the non-deterministic nature of ALOHA. This paper explores the judicious use of multiple power levels as a priority mechanism; e.g., the last transmission attempt uses higher power. It focuses on the practical and relevant range of three transmission attempts, up to three power levels, and maximum values of the permissible probability of missing the deadline (Pe) in the range 10-5 < Pe < 102. Our scheme increases the attainable delay-constrained throughput by 84-355% (two power levels) and 140-762% (three levels) over classical slotted ALOHA. An optimized combination of multiple copies and two power levels outperforms classical slotted ALOHA by 144-1240%. The smaller Pe, the greater the improvement. The benefit of our schemes is thus dramatic, and far exceeds the contribution of power capture to (unconstrained) capacity of ALOHA.

Private Dispute Resolution in the Card Context: Structure, Reputation, and Incentives

Explosive growth in credit, debit, and other card payment systems in recent years has produced a parallel growth in private dispute resolution systems based on the web of contracts entered into by merchants, merchant acquirers, consumers, card issuers, card associations, and transaction processors. These contracts have produced a legal system based on contract and whose enforcement rests primarily on reputational constraints. To cost-effectively resolve disputes, these private legal systems have evolved innovative procedures, including incentive-payments for producing information, rigid deadlines for parties' actions, and the use of the lowest-possible level resources to resolve disputes. This paper describes and analyzes these legal systems and their procedures as a potential model for resolving other categories of disputes.

Earn 3 Hours of CE credit

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Pre-authorised debit: creating cardholder choice

Pre-authorised debit is a new offline smart-card based payment method. It delivers an end-to-end low-risk debit solution that adds value to new or existing EMV infrastructures, providing a payment facility that is as secure as – and in some ways more versatile than – existing credit and debit card payment applications. But what exactly does this mean for cardholders?